What Are the Extra Costs When Buying a House?
You’re ready to buy a new home and it’s time to get your financial ducks in a row. A down payment and mortgage are a given — you may even know you’ll need proof of homeowners insurance up front. But are you prepared for the additional costs associated with buying a home that can show up when buying a house?
In most cases, you’ll need to have cash on hand to cover the earnest money, down payment, taxes and all the various closing costs when the time comes to sign on the dotted line. Let’s take a closer look so you can avoid those out-of-pocket surprises on your way to becoming a homeowner.
Closing fee or escrow fee
This is paid to the title company for handling the home closing as a third party.
Title search fees
This search is done through legal records in your area to make sure there aren’t any unpaid liens on the property before you buy.
Sellers pay the majority of title insurance costs but there is a portion that protects the buyer and, fairly enough, that’s the buyer’s responsibility.
The transaction will need to be reported to your city and county. While the title company will handle that for you, they do charge a fee for this service.
Transfer title and deed
The paperwork required to transfer the title and the deed will be drawn up by the title company and will be explained at the closing. There is a fee for this service when you buy a house.
The property taxes will be prorated so the buyer and seller will only pay for the portion of the year they’re in the home. This is all figured with your closing documentation and the associated costs are handled at this time.
You will need to prove that you have homeowners insurance lined up before the purchase can go through. An important point to keep in mind is that the minimum requirement for your loan may not be enough insurance and could leave you unprotected should something happen. Check with your American Family Insurance agent to make sure you not only have enough insurance for the closing but enough to give you all the protection your new home deserves.
If you use a realtor, they typically are paid a percentage of the sales price of the home. The going rate is somewhere between 6-7% and the amount may be split between buyer’s and seller’s realtors.
An attorney is not always required for a real estate transaction and the fees may be paid at a different time, depending on the situation. But if one is involved, don’t forget to plan for this charge when purchasing a home.
You may get a break here and not have courier fees during the home buying process, but there can be a last minute rush for paperwork and a courier may be required to speed things along.
A survey of the property may come into play during the home purchase negotiations. Typically the financial responsibility for the survey can be negotiated between the buyer and seller.
The home warranty is another piece that isn’t necessary. But sometimes buyers want a warranty included and sometimes the seller wants to put one in the deal to make it more attractive. No matter who asked for it, if it’s in the contract then the seller will pay for it.
Homeowners association fees
If there is a homeowners association, the HOA dues are typically prorated in much the same way the taxes on a property are. In some situations, there may be additional transfer fees associated with the HOA.
How to Budget for Costs of Buying a Home
In addition to understanding your annual net income, or how much you make after taxes, there’s a lot you can do to budget for buying a new house:
- Reserve part of your tax refund for the home’s down payment
- Pay down debt and high-interest credit cards now
- Trim your expenses — limit takeout and entertainment costs
- Build a realistic budget and stick to it
- Put a few hundred dollars aside each month for closing costs
What Else Do I Need to Know About Buying a House?
Remember that some of the home buying fees you’ll encounter when buying a home can be negotiated. Of note: you may be able to negotiate with whomever is charging a given fee. And in other situations, the buyer and lender may work out a deal on who has to pay certain closing costs. It’s all negotiable.
Many of the closing costs fall on the home buyer but sellers should be prepared for the realtor’s fees and all other negotiated expenses.
Closing costs vary and can be further impacted by the state you’re purchasing a house in and the lender you choose. A rule of thumb that may help you anticipate these expenses is that they typically range between 2% and 10% of the home sale price.
Get the Right Homeowners Coverage for Your New Home
If you have any questions about homeowners insurance and how to fully protect your new home, connect with an American Family Insurance agent — they’re happy to help you protect your new investment. And congrats on taking big steps toward homeownership!